“Yes, there will be more elderly people in the Europe of the future, but the elderly are not a homogenous group.”

Amlan Roy likes to cite Peter Drucker when he talks about demographics: “The single most important factor that nobody pays attention to is demographics, and when they do pay attention, they miss the point.”

This is because there are number of misconceptions about demographics and just how important it is, says the new Global Chief Retirement Strategist at State Street Global Advisors.

Not only about aging

His message: Yes, the average European is getting older and the number of elderly is constantly increasing, especially in the Benelux, but demographics is not just about age and ageing, Roy adds. “Three randomly selected Europeans may be the same age, but they can be a different gender and have different jobs, salaries and educations. These all play a role in demographics.”

Roy says that it is not the growing group of elderly people who are driving demographic changes. “It is consumers in general (including babies) and the working population who have the greatest impact on the economy. We have 7.4 billion consumers worldwide. Of these, the five billion employed people are the ones who earn the world’s gross domestic product. They also consume some 60 to 70% of that GDP.”

65 is not the same as 90

Major consumer goods companies like Unilever and Ahold Delhaize are well aware of that fact, says Amlan. The financial sector pay less attention to these factors.

“Banks and pension funds focus on the ECB and the impact of interest rates on pension payments. That’s fine, but the impact an interest rate hike has on the pension of a 65-year-old is very different to the impact it has on the pension of a 90-year-old. And young people are still saving for their pensions."

"More and more of those pension plans will be defined contribution schemes, with the amount of the (monthly) payments only determined when the person reaches pension age. Pension funds and banks are the ones that can make very clever use of that trend. They are the ones that can profit the most from the growing demand for financial products aimed at saving for ever-longer retirement periods. That goes way beyond looking at current interest rates.”

Pensions are also a short-term issue

Another misconception, says Roy, is that pension investors need to focus primarily on the long term, because pensions will only be paid out in the distant future. “Pensions are also a short-term issue. Some 22% of European GDP is spent on pensions and healthcare. That is money that is being paid out right now, not in the future.”

Roy believes that the age categories we are currently using are no longer up to the job. They need to be more refined. “We divide the population into 0-15, children, 16-65, the working population, and 65+, those entitled to pensions.

“But an 80-year-old generally incurs more healthcare costs than a 65-year-old. While the 65-year-old probably spends more on luxury goods. So they’re not all the same at all.”

Trends in Europe

Roy sees a number of demographic trends in Europe: “One trend is the increase in one or two-person households. These mini-families will account for 70 to 80% of the European population in the future. You probably think most of these of these people are students, but they’re mostly people in their sixties, seventies, eighties and even nineties. And they include those who remained single, have divorced or whose partner has died. Together, these people will be a very significant (new) group of consumers, but also the main recipients of pensions and healthcare.”

And for the first time in history, we will have four or five generations alive at the same time. “Because we are getting older all the time, there are more and more great-great-grandfathers and great-great-grandmothers. They even have pension-age children, who have working children with young grandchildren."

"These are all consumers, but only the grandchildren who are working and earning are contributing to GDP. The burden that these people will be carrying will be a lot heavier than in the past, when there were generally only three generations in a family.” Those trends do have an impact on demographics and pensions.

Greater role women

What does Roy think the pension of the future will look like? “One thing is certain and that is that we will retire even later. People will be old enough to work until their seventieth and still have a good number of years to enjoy their pensions.”

But the pensioners of the future are today’s millennials. They are very different employees, who will marry and have children later and work for more employers during their working life. So they are totally different from the baby boomers who are now retiring or have already retired.”

Working women will also play a greater role in the future. “The gender gap will get smaller and smaller. Women are better educated, more women are working, their salaries will steadily gain parity with men’s salaries and, perhaps also important when we’re talking about demographics and pensions, they live the longest. New technology should improve the home-work balance for women, so they can work more frequently outside the home,” says Roy. They already get this in Scandinavia, he concludes.

More pension education

Countries that want to keep or find a healthy division in terms of the number of young people versus older people will have to admit or attract more immigrants with the right experience and education.

Roy: “Countries will have to ask themselves what professions they will need in the future. A European pension, the first plans for which are currently being presented (see page 24), would be a major boost to labour migration.” But before we reach that future, pension funds, governments and the financial sector will have to devote more attention to information and education related to pensions, health and savings plans, says Roy.

“Europeans will have to save more and more towards their own pensions. But are they saving enough and do they know enough about their pension reserves? We need to guide them and we need to educate them on that front.”